AB InBev Wins U.S. Approval for $20.1 Billion Modelo Deal

Anheuser-Busch InBev NV and the U.S. Justice Department filed an agreement in court that resolves an antitrust lawsuit and allows the brewer’s $20.1 billion purchase of Grupo Modelo SAB to proceed.

AB InBev, in a filing yesterday in federal court in Washington, made binding commitments to turn winemaker Constellation Brands Inc. into a competing brewer that will produce and control all Modelo brands in the U.S., including Corona, the country’s biggest import. The government said the accord could save beer drinkers almost $1 billion a year due to lower prices.

“This is a big win for consumers,” Bill Baer, assistant attorney general in charge of the antitrust division, said in an interview. “If the court accepts the agreement, you are going to have a totally independent Constellation with all the incentives to be a successful competitor.”

The agreement permits AB InBev, the world’s biggest beermaker, to intensify its push into fast-growing emerging markets. It also allows Constellation to buy the stake that Modelo holds in their joint U.S. distribution venture for $1.85 billion, as announced at the time of AB InBev’s original bid. The Leuven, Belgium-based company expects the Modelo merger to deliver cost and revenue benefits of at least $1 billion a year as it extends its global lead over No. 2 SABMiller Plc.

AB InBev jumped as much 1.9 percent on news of the agreement before closing in Brussels at 75.60 euros a share, up

1.5 percent from the previous day. Constellation rose as much as

1.2 percent on the news, and climbed 1.8 percent to $48.19 at 12:52 p.m. in New York. Modelo dropped 0.3 percent to 111.82 pesos in Mexico City at 12:53 p.m. New York time.

‘Binding Commitments’

The company said in a statement it expects to close the transaction in June.

To promote the new beermaker’s independence, Mexico City-based Modelo will sell control of all its brands in the U.S., as well as a brewery it built in Piedras Negras, Mexico, to Constellation, a winemaker and drink-distribution company.

Constellation will be allowed to terminate Modelo distribution contracts in the U.S. and establish its own terms for selling the product. The settlement also bars AB InBev for three years from penalizing distributors that carry Modelo brand beers.

The proposed agreement filed yesterday adds Victor, New York-based Constellation as a defendant to the case, binding the company to the terms of the deal and allowing the government and the court to continue oversight.

‘Brewing Assets’

Unlike the original proposal that triggered the Jan. 31 lawsuit, the settlement “ensures Constellation will have independent brewing assets and the ownership of the Modelo brand beer for sale in the U.S. in perpetuity,” according to the court filing.

The sale of the Mexican plant will maintain an incentive to “resist following ABI’s price leadership” and expand market share, the U.S. said in a competitive impact statement filed yesterday.

AB InBev’s revised offer, made on Feb. 14, included a plan to boost brewing capacity at the Piedras Negras plant by about 70 percent with an investment of about $400 million. The plant produces Corona, Corona Light and Modelo Especial, allowing it to supply all of Crown’s needs for the U.S. market.

Under the revised deal, AB InBev also gave up an option to buy back a stake in Crown Imports LLC, the U.S. distributor of Corona and the other Modelo brands.

Lessons Learned

“The most important lessons from this case are that the Justice Department will sue on mergers it believes are anticompetitive, and will do so even when the parties come up with an inadequate fix,” Allen Grunes, an antitrust lawyer with Brownstein Hyatt Farber Schreck, who wasn’t involved in the case, said in an interview. “It also shows that they will accept settlements and not just continue to litigate when the settlement is within the zone of reasonableness.”

Mexico’s antitrust regulator approved the new structure with Constellation earlier this month, Modelo said in a statement to the Mexican stock exchange.

The deal faces one more possible hurdle, a private antitrust lawsuit filed by nine beer consumers in California who claim the merger should be blocked because it would reduce competition, raise beer prices and lead to price-fixing for their products.

The case is U.S. v. Anheuser-Busch InBev NV, 13-cv-00127, U.S. District Court, District of Columbia (Washington).

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